Is Electrocomponents plc A More Appealing Stock Than BAE Systems plc, Rolls-Royce Holding PLC And Royal Mail PLC After H1 Results?

Will Electrocomponents plc (LON:ECM) outperform BAE Systems plc (LON:BA), Rolls-Royce Holding PLC (LON:RR) and Royal Mail PLC (LON:RMG) after its results?


Electrocomponents plc (LON:ECM) (LSE:ECM.L) has released H1 results. Its revenue has increased by 12,7% on a reported basis and by 2.1% on an underlying basis. The latter figure excludes positive currency effects. Electrocomponents’ underlying revenue growth increased to 3.1% in Q2 as North America and Asia returned to growth.

Electrocomponents’ gross margins were increased by 30 bps, driven by initiatives on pricing and discounting discipline. This helped to improve Electrocomponents’ reported PBT by 174% to £54.5 million. This was helped by a significant reduction in the exceptional charge year on year.

The ‘Simplify – Operate For Less’ strategy employed by Electrocomponents drove a 2.3% points underlying improvement in operating margins to 8.2%. The company’s free cash flow rose to £50.1 million year on year, with improved stock turn of 2.8x versus 2.5x from the same period of the prior year.

Electrocomponents’ dividend was maintained at 5p per share even though its reported EPS increased by 190% to 9p. Its 2017 cost savings are ahead of plan, with £13 million delivered in H1. It has therefore raised the March 2017 savings target to £18 million against a previous figure of £15 million. Electrocomponents now expects to record £30 million of total annualised net savings by March 2018 against previous guidance of at least £25 million.

Shares in Electrocomponents have risen by over 10% today following the positive H1 results. They are now up by 71% in 2016, which is ahead of industrial peers BAE Systems plc (LON:BA), Rolls-Royce Holding PLC (LON:RR) and Royal Mail PLC (LON:RMG). Rolls-Royce has risen by 17%, BAE is up 18% and Royal Mail has gained 5% in 2016.

In my view, Electrocomponents could continue to perform well in future. It has a sound cost savings strategy and is set to deliver improved operating performance. North America and Asia returned to growth in Q2 and this bodes well for its H2 performance. Therefore, I believe that Electrocomponents has investment appeal on a relative basis.

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